How the concept of elasticity guides decisions in the Devaluation policy to encourage exports and discourage imports

Explain how the concept of elasticity guides decisions in the Devaluation policy to encourage exports and discourage imports

Devaluation policy to encourage exports and discourage imports:
Devaluation is the reduction of the relative value of a domestic currency; or simply as a deliberate reduction of the price of a domestic currency per unit of a foreign currency, usually in a fixed exchange rate regime.Devaluation makes exports cheaper while imports become relatively expensive and the policy of devaluation is going to be effective in encouraging exports and discouraging imports only where the demand for both exports and imports is highly elastic; in this case, devaluation tends to more than proportionately increase and decrease exports and imports respectively, ceteris paribus.



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